Conservatives may be surprised to hear that for over 50 years they have been successful in stopping the growth of big government. Going all the way to the early 1950s Federal spending has hovered in a fairly narrow band around 20% of GDP.
But even that limited success is soon to be swamped by reality. For the Federal Government’s long-term projections show a radical change over the next 40 years, with Federal spending soaring close to 40% of GDP or more. This is due to our nation’s big entitlement programs – Social Security, Medicaid and Medicare. Counting state and local spending, total government spending in the U.S. would be over 50% of GDP.
If anything even close were to occur it would be a crushing defeat for conservatives and the end of any notion of limited government.
Conservatives are going to have to be smart about how to approach this coming crisis of big government or we will be routed. We never will halt this tidalwave by trotting out old, hopeless schemes to cut entitlement benefits. Asking conservative politicians to bear this burden only would condemn conservatism to a generation of failure.
Notice how liberals are dealing with this threatening entitlement tsunami. They are promising even more entitlements, such as government children’s health insurance, universal pre-K and the biggest entitlement of all, national health insurance.
Nor is the answer to give in and raise taxes, as even some conservatives are now saying will be necessary. Some, indeed, want to broker a grand deal with liberals for big entitlement cuts in return for huge tax increases to balance the long-term budget. Even if we do get any entitlement cut through such a deal, advocates of this approach will be asking conservatives to support what yet would be a huge increase in Federal spending, to around 30% of GDP or more, in return for an enormous, unprecedented tax increase to support such spending levels.
Fortunately, in an article last October in BARRON’S Magazine, Peter J. Ferrara, of the new Supply Side Institute and the Institute for Policy Innovation, offers a better way. The solution, he argues, is to think outside the box of our current entitlement structures, and seek to reform these programs from the bottom up. By modernizing the programs to rely primarily on modern capital and labor markets, rather than old-fashioned, 19th Century, tax-and-spend redistribution, we actually can serve the beneficiaries of these programs far better, with only a fraction of the government spending on the current programs. Indeed, Ferrara argues, with such fundamental, modernizing reforms, we can not only stop the coming explosion in government spending but actually reduce that spending to substantially less than the current level of 20% of GDP.
For example, Ferrara emphasizes the shocking success of the 1996 reforms of the old Aid to Families with Dependent Children (AFDC) welfare program. Based on concepts developed by my long-time friend and Reagan welfare guru, the late Robert Carleson, AFDC was “block granted” back to the states. This means the share of Federal spending on the program was sent back to each state to be used for a new welfare program designed by each state based upon required work for the able bodied.
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